3. Conflicts Among the Functions of Money

In fact, the secondary functions money serves invariably end up
hurting the two essential ones. Some examples follow.

Store of Value Versus Medium of Exchange

At first sight, it really is convenient to have money also play the
role of store of value. However, there is a formidable hidden
cost: this identity significantly exacerbates the boom-bust economic cycle.

The theory of time preference of money, which describes
the rational trade-off between consumption today and saving for
the future, explains this: When someone expects higher uncertainty
in the future, a larger proportion of his or her wealth is
logically kept as savings, and less is thus available for immediate
consumption. Therefore, at the first signs of a recession, anybody
who has money will logically save more and consume less,
thereby exacerbating the recession for everybody else. In boom
years, consumer optimism prevails, and people will tend to
simultaneously dip into their savings to buy big-ticket items such
as cars and houses, thereby pushing the boom into an inflationary period.
While other factors also play a role in the creation of
business cycles, it has been proven many times that consumer
confidence significantly exacerbates the problem. Providing
incentives to ensure that the medium of exchange does not also
incorporate the store of value function would therefore automatically
dampen this boom-bust tendency of the current system.

Speculation Versus Standard of Value

Joel Kurtzman's The Death of Money convincingly describes
why and how the speculation on currency undermines currency's
role as a standard of value. If, for example, a German company
wants to invest in a plant in India, the biggest uncertainty lies
not in the risks of the business itself but in what currency to use
to make cash-flow projections: rupees, dollars, or Deutsche
Mark? The initial investment is in Deutsche Mark, and the proceeds will be generated in rupees, but at what exchange rate can
one match the two to determine the expected rate of return? While
there are some tools available to manage this risk for short-term
transactions, they often are not available for the long-term risks
typical in plant investments, or they are simply too expensive.
The net result: fewer cross-border investments, particularly in
Third World countries, thereby reducing the worldwide efficiency
of resource allocation. We will never be able to determine how
many investments have not occurred because of this, but all indications suggest they are quite substantial.

Tool of Empire Versus Medium of Exchange

Recent history provides a telling example of the potential
conflict inherent in these two functions of money: Before the collapse of communism, there was no need for anybody to stand
guard next to a plant in Poland to ensure that it would not
establish closer trade relationships with the West than the Soviet Union
felt comfortable with. Having the Comecon currencies convertible
only in rubles was an automatic and sufficient guarantee.

4. Problems with Interest

Another feature of today's money that we take for granted is that
money produces interest. This process has become universally
accepted in the West only over the past century. Indeed, for more
than a thousand years all three major revealed religions emphatically
prohibited any interest on money because they considered
it usury. It is only since the end of the l9th Century that the
Catholic Church, for instance, "forgot" about the sin of usury.(note 2)
This happened to coincide with the period when the Church itself,
which for centuries used to be the largest landowner in
Western Europe (that is, it was a capital user), found itself with
financial assets instead of land (that is, it had become a capital
supplier).

However, the problem with interest does not relate to any of
these "moral" historico-religious reasons. Interest on money
constitutes one of the most systematic causes of our destruction
of the global environment. Consider as metaphor, for example,
the life of a tree (or any other living resource): Because of interest, the net present value of any income far away in the future is
negligible. So, it literally pays to cut down a tree and put the
proceeds in a savings account instead of letting it grow for another decade or century. Similarly, the only types of tree worth
planting commercially are the fastest-growing varieties such as
pine. (Nobody plants redwoods for commercial reasons.) So even
when we plant trees, we are systematically losing biodiversity.